After the obtaining the net income, the consequent deductions and additions are made. These deductions and additions are non-cash expense and revenue items.
The income statement in this case can show whether the company is making losses or profits. Here the company is making profits in the given time period, one year- the year 2012.
In the income statement, all the revenues are listed, for example sales, also all the expenses within the said time period is depicted and subtracted from the Net sales. In this case there were no income taxes. The result gives the net income, showing the profitability of the company.
The Cash Flow Statement shows how cash moves in and out of the company. The Cash Flow Statement shows the owners or the managers of the company when the company needs or requires financial injection in order to fulfill the company’s objectives, goals and/or expansion. The cash and cash equivalents at the end of the period will be the cash and cash equivalents at the beginning of the next trade period.
The major differences between the Cash Flow Statement and the Income Statement is the way elements and accounts are handled in both statements.
In the cash flows statements, an increase in the value of an asset, for example land, is deducted since it removes from the Net income. While in the income statement, an increase in the value of an asset is not reflected.
In the cash flow statement, all the increase in capital by investing activities and financial activities are reflected and an increase in these sources of income is added to the net income. This is because an increase in other sources of the income adds to the net income of the business or company at the given time period.
Adjustments for liabilities are also shown. When these adjustments are made, an increase in liabilities is added to net income. This is because liabilities add the value of net income.
References
Financial Accounting Standards Board. (1987). Statement of cash flows. Stamford: The Board.
Financial Accounting Standards Board., & FASB Emerging Issues Task Force. (2012). Statement of cash flows (Topic 230): Not-for-profit entities : classification of the sale proceeds of donated financial assets in the statement of cash flows. Norwalk: Financial Accounting Standards Board.
